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| Acceleartion Clause | A common provision of a mortgage or note providing the lender with the right to demand that the entire outstanding balance be immediately due and payable in the event of default. |
| Administrative Costs | A lender's operating and fixed costs charged for completing and servicing a loan. |
| Amortized Loan | A loan with a series of regularly scheduled payments that include both interest and partial repayment of principal. |
| Amortized Loan (Equal Payments) | Payments are of equal size with declining interest and increasing principal. |
| Amortized Loan (Equal Principal Payments) | Equal principal payments with declining interest payments. Interest decreases because the unpaid balance decreases. Because the interest payment decreases, the total payment also decreases over the term of the loan. |
| Amortized Loan (Reverse Amortization) | The annual payment is less than the interest obligation during the early years of the debt obligation so that the outstanding balance on the debt actually increases rather than decreases over the term of the loan. |
| Assets | The items and property owned or controlled by an individual or business that have commercial or exchange value. Items may also include claims against others. All assets are reported on a balance sheet at market or cost value less accumulated depreciation. Assets are normally divided into categories based on their useful life. |
| Current Assets | Assets that will be used or converted into cash within one year. Also called liquid assets. |
| Intermediate Assets | Assets with useful lives of more than one year but not more than ten years. Their sale will affect the future income potential of the business. |
| Long-term Assets | Assets with useful lives of more than ten years. Long-term assets include real estate. Sometimes both intermediate and long term assets are combined and called fixed assets. |
| Financial Assets | Intangible assets such as cash and savings. |
| Real Assets | Asset that are tangible or physical in nature such as land, machinery, and livestock. |
| Assignment of Loan | The transfer of title, property, rights or other interests from one person or entity to another. |
| Average Cost of Funds | A method of determining a lending institution’s cost of funds. It uses an average cost of existing funds. In contrast, the marginal cost of funds uses the cost of new funds only. |
| Balance Sheet | A listing of all assets and liabilities at a given point in time. The amount by which assets exceed liabilities is called net worth or owner's equity. Also called a net worth statement or financial statement. |
| Comparitive Balance Sheet | A listing of the current balance sheet along with those of previous years so financial trends over time can be identified. |
| Statement of Changes in Financial Position | A listing of the amount by which various items on the balance sheet change from one time period to the next. |
| Bankruptcy | The federal court proceeding by which a debtor (individual or corporation) may obtain protection from creditors. The two general types of bankruptcy are voluntary and involuntary. A voluntary bankruptcy is initiated when the debtor voluntarily files a petition. In an involuntary bankruptcy, the creditor forces the debtor into bankruptcy. Debtors qualifying as farmers may not be involuntarily forced into bankruptcy. Bankruptcy proceedings involving farmers are declared under one of the several chapters of the federal bankruptcy code: Chapter 7 - liquidation; Chapters 11 and 12 - reorganizations; Chapter 13 - adjustment and workouts of debt. |
| Bond | Long-term promissory note for money borrowed by a firm from investors. |
| Capital | Used with terms like capital assets, capital investments and capital improvements. It describes money invested in anticipation of a return over a long period of time. |
| Human Capital | Human assets consisting of items such as skilled workers. |
| Physical Capital | Consists of financial assets and real assets. |
| Capital Market | Includes all financial transactions between users of funds and suppliers of funds. |
| Primary Market | Trading in new financial instruments where the funds received are invested in the firm. A market for new securities. |
| Secondary Market | Trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange, bond markets, over-the-counter markets, residential mortgage loans and governmental guaranteed loans. |
| Cash Flow | Cash money flowing in and out of the business. Cash flow is not the same as profitability. |
| Cash Flow Budget | A projection of all cash income and expenditures for a given period of time, normally one year. It shows when additional funds will need to be borrowed, and when funds will be available for repayment of debt. |
| Working Capital | The amount of funds available for use in operating the business. Commonly calculated as the amount by which current assets exceed current liabilities. |
| Closing | Process by which all fees and documents required by a lender prior to disbursing loan proceeds are executed and filed. Usually used in reference to the completion of a real estate transaction that transfers rights of ownership in exchange for monetary considerations. |
| Closing Costs | The costs incurred by borrowers and sellers in completing a loan transaction. Included are origination fees, inspections, title insurance, appraisals, attorney’s and realtor’s fees, and other costs of closing a loan. |
| Collateral | Property pledged to assure repayment of debt. |
| Compensating Balance | A minimum account balance that a borrower is required to maintain as a requirement of obtaining a loan. It raises the effective interest rate on the loan. |
| Co-signer | An individual, in addition to the borrower, who signs a note and thus assumes responsibility and liability for repayment. |
| Cost of Funds | Refers to the interest and non-interest cost of obtaining equity and debt funds. |
| Credit | Money borrowed with the understanding that it will be repaid. |
| Line of Credit | Commitment by a lender to provide up to a set amount of funds during a specific period of time. Funds are drawn against this commitment as they are needed. Also called a budget loan. |
| Creditor | The party providing or lending the money. |
| Current Ratio | A liquidity ratio calculated as current assets divided by current liabilities. |
| Debt | A financial obligation owed to another. |
| Debt-to-Asset Ratio | A solvency ratio calculated as total liabilities divided by total assets. |
| Debtor | The person who either owes payment or other performance on an obligation such as a contract or note. |
| Default | The failure of a borrower to meet the financial obligations of a loan or a breach of any of the other terms or covenants of a loan. |
| Down Payment | The amount of equity funds invested in the purchase of an asset. The down payment plus the amount borrowed generally equals the total value of the asset purchased. |
| Encumbrance | A claim against property or an interest in property that limits the ownership right of the property. Examples include liens, mortgages and leases. |
| Equity | The owner's capital invested in a business. The amount by which assets exceed liabilities. For example, equity in a farm is the value of the farm less the amount owed against it. Also called owner's equity or net worth. |
| Fees | A fixed charge or payment for services associated with a loan transaction. |
| Financial Statement | A statement or report of the financial condition of a firm. Financial statements include the balance sheet, income statement, statement of changes in net worth and statement of cash flow. |
| Foreclosure | The legal process by which a lien against property is enforced through the taking and selling of the property. |
| Income Statement | A summary of income and expenses over a given time period. In addition to cash income and expenses, it takes into account non-cash expenses like depreciation. |
| Accrual Income Statement | An income statement that, in addition to including cash incomes and expenses, takes into account all changes in the value of inventories and capital to arrive at net farm income |
| Net Farm Income | The profit or loss from the year's operation. It is calculated through the use of an income statement. It considers not only cash income and expenses, but also depreciation. Accrual net farm income adjusts for inventory changes and the value of farm products consumed in the farm home. |
| Net Cash Farm Income | The profit or loss calculated by using only cash income and cash expenses. |
| Statement of Retained Earnings | A financial statement that reconciles the balance in the retained earnings account at the beginning of the income statement period to the balance at the end of the period. |
| Interest | A charge paid for the use of someone else's money. |
| Liabilities | Financial obligations of a business. There are several categories of liabilities frequently used in agricultural finance. The liability will normally be secured by assets in a similar category. For example, current liabilities are normally secured by current assets. |
| Liquidity | The ability of a business to generate cash to meet its financial obligations. |
| Liquid Asset | Cash or an asset that can easily be converted to cash. |
| Marginal Cost of Funds | A loan pricing policy where interest rates on new loans are based on the cost of new funds acquired in financial markets to fund the loans. This pricing policy contrasts with loan pricing based on the average cost of funds already acquired by a lending institution. |
| Mortgage | A legal instrument (document) that conveys a security interest in real estate property to the mortgagee (i.e., a lender) as an assurance that a loan will be repaid. |
| Net Worth | The financial claim by owners on the total assets of a business. It is the amount of the value of the assets remaining after the financial claims against the business by outsiders (liabilities) has been deducted. It is calculated as total assets minus total liabilities equals net worth. Also called equity capital and owner’s equity. |
| Note | A written document in which a borrower promises to repay a loan to a lender at a stipulated interest rate within a specified time period or upon demand. Also called a promissory note. |
| Principal | The dollar amount of a loan outstanding at a specific point in time (unpaid balance), or the portion of a loan payment that represents a reduction in the loan unpaid balance. Principal is distinguished from interest due on a loan or the interest portion of a loan payment. A loan payment is made up of interest (charge for the use of the money) and principal (a repayment of a portion of the unpaid debt balance). |
| Risk Assessment | The procedures a lender follows in evaluating a borrower's creditworthiness, repayment ability, and collateral position relative to the borrower's intended use of the loan proceeds. Risk assessment is similar to credit scoring and risk rating. |
| Solvency | A measure of the relative size of a business's assets and liabilities. |
| Trend Analysis | The use of financial measures or ratios over several time periods to evaluate business performance. |
